Iron ore has slipped below $US100 a tonne as a bear market for the commodity threatens billions of dollars in Australian mining revenue.

Iron ore, measured out of the Tianjin port in China, lost a further 2.2 per cent overnight on Monday, sliding to $US98.50 per tonne, its lowest point since September 2012.

Slumping: the price of iron ore has now fallen 28 per cent this year. Photo: Louie Douvis

The bulk metal has slumped 6.6 per cent in May and has pushed deeper into bear market territory, down 26.6 per cent for the year.

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The Bureau of Resources and Energy Economics (BREE) had forecast an average price of $US110 per tonne for 2014. Australia is expected to export 687 million tonnes of the raw material this year.

At an average price of $US110 per tonne, iron ore revenue in Australia would be around $US75.6 billion ($81 billion), but if the average were to fall to around the current spot price of iron ore, revenue would sink to $US67.7 billion.

Diversified miners are ramping up iron ore production, while single-metal miners continue to add to supply, ultimately leading to oversupply and a further slump in the iron ore price.

Earlier this year, BHP Billiton increased its full-year iron ore guidance above even the most optimistic analyst expectations to 217 million tonnes for the 2014 financial year. Last week, Rio Tinto announced that its iron ore operations in the Pilbara reached a record run rate of 290 million tonnes per year.

Rio breaks even at around $US44 per tonne, while BHP comes in at $US55 per tonne. Mount Gibson's cash costs are much higher, at $US84 per tonne and Atlas's sit at $US80 per tonne. Fortescue Metals Group breaks even at around $US70 a tonne.

Larger miners also have access to higher quality grades of iron ore that they sell at a premium above the benchmark price.

"It's a question of timing here. A company's cost of production can come down through time, through increased efficiencies, through improved scale, but if their cost of production doesn't come down before the iron ore price comes down, clearly there's a problem with regards to their margins, especially in an environment where some of these companies are carry heavy debt levels," Mr Lele said.

Global miners, such as BHP and Rio can weather a much weaker iron ore price because they have a lower cost base, while smaller miners, such as Atlas Iron and Mount Gibson Iron maintain a much smaller margin.

Rio Tinto chief executive Sam Walsh says iron ore prices "will end up where they end up", and "we are price makers not takers".

He was speaking at Rio's annual general meeting in Melbourne, less than two weeks ago, when the iron ore price was hovering around $US110.

But his message is one Rio sticks to fairly tightly and consistently.

Mr Walsh said the outlook for iron ore was "fundamentally strong", driven by the growth of the Chinese middle class.

But he did note that "we are seeing a difference in the market in relation to how iron ore is valued".

Environmental reform in China was seeing a forced reduction in the capacity of steel mills, which was pushing demand lower in the short term.

A $US10 movement in the iron price translates to a $US2.1 billion difference to Rio Tinto's bottom line, and $US1.2 billion for BHP Billiton, which is roughly half as exposed as its rival, according to Credit Suisse figures for the 2015 year.

The return of Chinese domestic iron ore producers to the market after winter has also impacted heavily on supply in the last month.

"On a normal year, they come back on production around March," Citi commodities strategist Ivan Szpakowski said.

"However, this year because of the price had fallen so steeply in March, quite a number had postponed production, then when prices rebounded back up to $US115-$US120 per tonne, then these miners came back online. Now in the last few weeks, we've seen this supply hit the market," Mr Szpakowski said.

Goldman Sachs forecast the price of iron ore to slide to $US80 per tonne as the market becomes oversupplied in 2015.

The rest of the year should see a moderation in price falls for iron ore, Mr Szpakowski said, forecasting a fourth quarter average price of $US100 per tonne.

"In terms of having the largest bearish pressure on the market, we had been expecting the second quarter to be the worst quarter with respect to prices," he said. "In the second half of the year, there are much more modest increases on a sequential basis in terms of supply."

The fall in the price of iron ore is further magnified by a slowdown in China's residential property sector, which accounts for 24 per cent of steel consumption in the world's second-largest economy.

Building, sale and outfitting of apartments represented 23 per cent of Chinese gross domestic product last year, according to Moody's Analytics.

According to China's National Bureau of Statistics, home sales fell 18 per cent in April, while the value of sales declined to CNY418 billion ($71.8 billion). New property construction fell 22 per cent in the four months to the end of April.

New loans in China fell in April from CNY1.05 trillion to CNY774.7 billion, amid the government's crackdown on credit.

"Money supply in China has been relatively weak, which is a key driver of property sales and property sales data has been very, very weak in April and parts of May," Mr Lele said.